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How the Chip Shortage is affecting the Auto Industry

Over the last two years, the automotive industry has been impacted by a series of miniature crises, which have coincided to create a perfect storm. Supply chains have been disrupted by Covid-19, and by political factors in East Asia.

Among the most considerable problems have stemmed from the silicon shortage, which has severely limited the manufacturing capacity of many major manufacturers. Just about every modern car comes equipped with a range of sophisticated computer chips.

What is a semiconductor?

Modern computing wouldn’t be possible without a semiconductor. These materials aren’t conductive in the same way as copper, and they aren’t insulators in the same way as plastic. They, instead, have properties somewhere in the middle. They’re capable of conducting electricity in some circumstances and blocking it in others. This allows for the development of fundamental components like diodes and transistors, which in modern circuits are made very small and crammed into tiny integrated circuits.

This ability to selectively conduct and not-conduct electricity allows for the sending of digital messages, encoded in on and off signals. Without this technology, modern innovations like lane assist, digital radio, and computer-driven engine management would not be possible.

Why is there a shortage?

There are a few limitations to modern methods of silicon chip manufacture. For starters, chips must be manufactured using a very limited number of highly-expensive lithographic machines (the production of which has been affected by the shortage). This process can take months.

This is significant because it makes sudden disruptions difficult to recover from. When the Covid-19 pandemic arrived auto manufacturers (perhaps understandably) determined that they needed to scale back their manufacturing. At the same time, computer manufacturers were enjoying a boom driven by lockdown and consumers looking to invest in home electronics devices. As such, all of the spare capacity was swiftly bought up.

So, when the lockdowns were lifted and the auto market was free to recover, they found themselves at the back of the queue. Many in the semiconductor industry predict that it will take at least another year before the problems resolve themselves which means long-term disruption for the motoring industry and long waiting lists for customers looking to invest in new vehicles.

Among the many knock-on effects of this supply shortage has been a rise in prices for second-hand vehicles. With supply restricted and demand unabated, used car sales firms have found themselves under significant demand.

During the lockdown, there was an enormous reduction in demand for cars, since no-one had anywhere to be fast. While there’s been a pronounced recovery in demand since then, much of that recovery has been concentrated in new electric vehicles, which rely even more on computer chips than more traditional kinds of vehicle. As such, the industry faces a challenge in keeping up with the demand.

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